Takeaways from Orbcomm’s May 4 earnings results:
— Expect a midsize acquisition using high-yield bond proceeds this year.
— Hali service for small maritime vessels to extend AIS business reach.
— Giant order with China’s CIMC appears to be on the horizon.
— Company scrambling to meet increased product demand this year.
PARIS — Satellite M2M/IoT provider Orbcomm Inc. told investors to expect a midsize acquisition in the coming months now that a $250-million high-yield bond issue has closed.
Orbcomm Chief Executive Marc J. Eisenberg said the company is scouting several prospective targets among service providers in the United States and that investors should “expect something relatively quickly.”
In a May 4 conference call, Eisenberg and Orbcomm Chief Financial Officer Robert G. Costantini were almost giddy in their assessment of the company’s current business, saying the only near-term issue is whether even Orbcomm’s recently increased equipment manufacturing capacity can keep up with customer demand.
“The hardware is actually slowing us down right now,” Eisenberg said. New customer orders are coming in at what he said was an unprecedented volume.
Is the China behemoth awakening?
And the current backlog does not yet include a major order from the China International Marine Container Co., CIMC, which in late 2015 named Orbcomm as a factory-installed partner but has been slow to move to testing and a high-volume order.
Eisenberg said CIMC — which builds nearly half of the world’s large shipping containers — recently indicated that it would proceed with a 10,000-unit pilot program with Orbcomm’s subscriber modules.
“I love pilots in the 10,000 range, don’t you?” Eisenberg said.
Orbcomm launched its second-generation constellation of low-orbiting satellites in mid-2014 and late-2015. One of the satellites has since failed but the rest have been tested and are in commercial service.
No more in-orbit insurance coverage
The company said a final group of satellites was being moved into its orbital plane and would be in place by the end of this year. The second-generation satellites are now providing 80% of Orbcomm’s total network traffic.
Orbcomm has elected not to continue its in-orbit insurance for the satellites. The policy expired in December, the company said in a filing with the U.S. Securities and Exchange Commission (SEC).
Orbcomm reported total revenue of $51.9 million for the three months ending March 31, up 19% over the same period a year ago. Growth was generated in all the major business lines.
Service revenue was up 10%, to $29.5 million. Equipment revenue was up 35%, to $22.4 million. Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, was up 16%, to $12.4 million, for a 24% margin.
As of March 31, Orbcomm had 1.77 million subscribers, a 10% increase from a year earlier.
Orbcomm’s Automatic Identification Service (AIS), which provides maritime traffic data to coastal authorities for ships that are beyond the reach of coastal radars, reported a record $2.2 million for the three-month period.
Costantini said Orbcomm is sticking with its long-held believe that the global AIS market is no more than $10 million to $15 million in annual revenue. With Orbcomm now on track to post around $9 million in AIS revenue in 2017, that would make Orbcomm the dominant player in a market in which many new entrants, including Spire Global and exactEarth, are fielding satellite assets.
Eisenberg said Orbcomm’s new Hali tri-mode service, developed with maritime equipment providers Pole Star and Weatherdock, will extend the AIS business to pleasure craft and small fishing fleets that currently are not fitted with AIS transmitters.
No threat from big LEO constellations seen
Eisenberg acknowledged that constellations of satellites for voice and especially data communications are being announced regularly, but he said Orbcomm’s low-cost approach — even if it means sacrificing speed of message delivery — is what customers are after.
“It’s really about how you can help them run their business,” Eisenberg said.
“Whether your network takes a minute to send that message or whether it takes eight seconds, they are going to get the message and be more productive. There is a lot of capacity coming on the market in the non-M2M areas. It’s going to be a struggle in some of those industries, but I’ve known these guys a long time and I certainly wish them luck.”